Audit objections with respect to 'Assessment of small scale industrial undertakings'. - Income Tax - 1877/1991

INSTRUCTION NO. 1877/1991 Dated: January 17, 1991 The Comptroller Auditor General has recently conducted a review on the "Assessment of small-scale industrial undertakings". In this a number of objections have been raised which clearly indicate that the provisions under Chapter VI-A of the Income-tax Act are either not being applied at all, or are being applied incorrectly by Assessing Officers without verifying whether the conditions laid down under the respective provisions of law are fulfilled or not. Some such objections are summarised below:- (i) The Assessing Officers do not obtain/check any authentic record of the number of workers employed by the assessee in the manufacture of their products, as is required under section 80HHA. (ii) The Assessing Officers do not verify the actual cost of plant and machinery installed, as is required under explanation to section 88HHA. (iii) The Assessing Officers do not satisfy themselves that a particular location, claimed by the assessee, to be a rural area for concession under section 80HHA, is actually declared to be so. (iv) Ineligible units claim the benefit intended for units in backward areas, Such claim is allowed without verification. (v) Large-scale industrial units avail of the concessions which are intended for small-scale industries. This, too, is allowed without verification. (vi) Production of audit certificates from the accountant in Forms 10CC and 10CCB, certifying the correctness of accounts, are not insisted upon, as is required under sections 80HHA and 80HHC, respectively. (vii) While working out permissible deductions, the Assessing Officers adopt the gross income shown by the assessees, which includes sales tax, central excise duty, etc., that has been collected and also stand reflected in the statements of account. Consequently, the concerned units receive undue and excessive benefit. (viii) Certain units, which were only processing materials and were not manufacturing or producing any article or thing enjoyed fiscal concessions under section 80HH and 80HHA. This was not the intention of the legislature. 2. While accepting these audit objections, the Board have expressed their dissatisfaction with the work of the Assessing Officers. It may be true that some such irregularities are overlooked because of the summary assessment procedure, but the Comptroller Auditor General has observed that such mistakes were committed by the Assessing Officers even where the assessments were completed after scrutiny. The loss of revenue on account of such irregularities alone has been reported at Rs. 4.23 crores, which is alarming. 3. Necessary instructions may be issued to the Assessing Officers working in your region to acquaint themselves with the legal provisions, as clarified from time-to-time through legal pronouncements and Board's instructions and circulars, before they allow any deduction under Chapter VI-A while computing the taxable income of the assessees.